MasTec, Inc. (MTZ – Free Report) is well positioned for near-term growth given continued customer demand for renewable energy generation, power grid transmission and distribution, and civil infrastructure services. Furthermore, the acquisition of Infrastructure and Energy Alternatives, Inc. (IEA) and the significant shift of operations in 2022 to the non-Oil & Gas segments bode well.
Shares of the leading infrastructure construction company gained 17.8% in a month, outperforming the 11.1% growth of the Zacks Building Products – Heavy Construction sector. In fact, over the past six months, MTZ stock has gained 10.7%, compared with the industry’s 11.7% increase.
However, lower earnings expectations for 2022, supply chain issues, higher costs and project delays remain concerns.
MasTec currently holds a Zacks Rank #3 (Hold). you can see the complete list of today’s Zacks #1 Rank (Strong Buy) stock here.
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Let’s take a deeper dive into the main driving factors.
Focus on non-Oil and Gas business: MTZ’s continued focus on business diversification and improvement in the non-oil and gas segments is expected to drive earnings growth. Growing demand for carbon-neutral sources for electrical infrastructure bodes well for the company.
MasTec’s non-oil and gas segment revenues increased 38% year over year in the third quarter of 2022. It accounted for 85% of quarterly revenues and 80% of operating EBITDA and significantly diversified both revenues than the earnings mix. Its non-Oil and Gas segments achieved double-digit EBITDA margins, improving 250 basis points (bps) year-over-year and 370 bps sequentially.
Third Quarter 2022 Revenue Growth in Non-Oil & Gas Operations Was Led by $300 Million or 88% in Power Delivery Segment, $200 Million or 33% in Communications Segment, and $50 Million or 9% in Clean Energy Segment and infrastructure. MTZ continues to expect strong revenue growth in these areas going forward, supported by solid backlog levels across its non-Oil and Gas segments.
Solid level of backlog: At the end of September, the company had an 18-month backlog of $11.2 billion, up 32% year over year and a sequential increase of $222 million. This backlog provides it with strong visibility in 2022 and 2023. MasTec expects to deliver approximately 22% of its end-September backlog in 2022.
For the full year, it expects to generate significant revenue contributions from the non-oil and gas segments, which account for nearly 90 percent of its estimated annual revenue of $9.7 billion.
As of September 30, the Clean Energy and Infrastructure backlog increased 23.1 percent from a year ago to $1.93 billion. A continued focus on carbon neutrality is expected to drive growth in this segment. For 2023, MasTec expects this segment to achieve approximately $5 billion in revenues with improved annual Adjusted EBITDA margin rate performance in the mid-to-high single-digit range.
In the communications segment, end-September backlog increased 12.4% from a year ago to $5.02 billion. For the Power Delivery segment, backlog at the end of September increased 109.2% from a year ago to $2.76 billion.
Acquisition of the IEA: In October 2022, MasTec completed the acquisition of Infrastructure and Energy Alternatives, Inc. (IEA), a leading provider of utility-scale renewable energy infrastructure solutions in North America. MasTec expects IEA to generate revenues of $2.6 billion to $2.7 billion and Adjusted EBITDA of $160 to $170 million in 2023, net of any post-transaction synergies.
MTZ expects annual cost savings of approximately $10 million through a combination of the reduction in IEA public company ratios and other costs. The IEA is expected to generate $45-$50 million in adjusted net income in 2023.
Inflationary pressures: MasTec has experienced the general impact of inflationary pressures and labor shortages on its business. Labor, fuel and material costs are expected to increase in the future and may continue to impact profitability and cash flows.
In addition, inflationary pressures and related concerns, in light of government and central bank efforts to mitigate inflation, may also cause uncertainty and affect project activity. Such factors could also have a negative impact on the company’s profitability and cash flows.
Due to acquisition integration costs and inflationary pressures, MasTec now expects adjusted earnings to be $3.02 per share versus its previous expectation of $3.09 per share. The estimated figure indicates a decrease from $5.58 per share posted in 2021.
Project delays and supply chain disruptions: While MasTec has sufficient visibility, the biggest risks to its drive are government clearances, crew social distancing mitigation, and the impact that could have on project schedules, along with any project delays. In particular, the MVP pipeline continues to experience delays due to clearances and court actions.
3 high-end construction stocks hogging the limelight
Some top-ranked stocks worth a look in the construction industry include:
EMCOR Group, Inc. (EMME – Free Report) — with a Zacks Rank # 2 (Buy) — is a leading provider of mechanical and electrical construction, industrial and energy infrastructure, as well as construction services for a wide variety of businesses.
Projected earnings growth rates for EME for 2022 and 2023 are 10.2% and 17%, respectively. Zacks’ consensus estimate for year-to-date and next-year earnings improved 0.6% and 13%, respectively, over the past 30 days.
Sterling Infrastructure, Inc. (STRL – Free Report) — also with a Zacks Rank no.
STRL’s projected earnings growth rates for 2022 and 2023 are 47.4% and 6.3%, respectively. Zacks’ consensus estimate for year-to-date and next-year earnings improved 4.3% and 3.4%, respectively, over the past 30 days.
Altair Engineering Inc. (OTHER – Free Report) — also with Zacks Rank #2 — provides software and cloud solutions for simulation, high performance computing, data analytics and artificial intelligence worldwide.
ALTR’s projected earnings growth rate for 2022 and 2023 is set at 10.6% and 21.5%, respectively.